How to overcome mortgage stress in Australia

How to overcome mortgage stress in Australia

Almost one million Australian households are reeling under mortgage stress. What’s next?
Nearly one million households in Australia are burdened by their mortgage. Latest figures by DFA reveal that 996,000 Australian families were grappling with mortgage stress in August, up from 990,000 in the previous month. Of these, more than 23,000 households were considered to be under severe stress, and 59,000 risk a 30-day default in the next 12 months.

Almost one-third of Australian homeowners are struggling to make the repayments on their mortgage thanks to out-of-turn rate hikes by the banks and flatlining wage growth.

What is mortgage stress?

You are reeling under mortgage stress if you are spending over 30 percent of your pre-tax income to meet your mortgage repayments.

DFA explains that a household is said to be under mortgage stress when the net income does not cover ongoing costs, and the family must cut down on household spending to meet their monthly mortgage repayments. Households under severe stress are unable to meet their mortgage repayments and likely to seek hardship assistance, and often forced to sell their homes.

Did you know that approximately 30.5 percent of all owner-occupied households in Australia are currently experiencing mortgage stress?

According to DFA, “The fact that a significant number of households have had their potential borrowing power crimped by lending standards belatedly being tightened, and are therefore mortgage prisoners, is significant.” Besides, “Continued rises in living costs – notably childcare, school fees and fuel – whilst real incomes continue to fall, and underemployment is causing significant pain.”

So, what next?

Many homebuyers have successfully battled mortgage stress by refinancing to lower rates that have helped them manage their monthly repayments successfully. Martin North of DFA points out that the main reason why people are refinancing their mortgage is that they want to reduce their monthly outgoings. However, he shares that the number of people being rejected by banks for home loans is increasing.

“Lending standards have finally been tightened by the banks on the key assessment criteria of income, expenses, and loan to value ratio. All critical parameters in the credit market have been tightened….A year ago, 5% of people were being rejected by banks when applying to refinance their mortgage. Now it is 40% which is a huge difference,” says Mr North.

According to a new HashChing survey of its broker network, 41 per cent of brokers believe that more than a quarter of borrowers who secured a home loan last year would not be approved for the same product today due to increased scrutiny of living expenses.

“Reviewing a loan applicant’s living expenses is a rational metric to assess suitability for the loan, and doing so should provide more protections for both banks and borrowers,” Ms Hayden said. “However, combing through living expenses is having an adverse effect on existing homeowners who would not qualify for their current mortgage today. This leaves them unable to refinance and stuck with their existing rate.”

So what options do existing homebuyers have suffering under mortgage stress?

According to Ms Hayden, “Those wanting to get ahead and buy a home or refinance need to be proactive and seek financial advice from a verified expert that understands the recent changes to lending.”

At HashChing, we offer you the expertise of a growing network of over 700 professional brokers across Australia who work hard to bring you the best home loan rates across the country. In case you aren’t aware, a mortgage broker is also a financial expert who can help you make informed financial decisions in addition to recommending home loan options tailored to your financial situation. Visit our website to compare broker pre-negotiated home loan rates that could be as much as one per cent lower than lender advertised rates elsewhere. Compare mortgage rates and features and choose one that fits your criteria…and, that’s it! Our brokers will do all the legwork on your behalf so that you have free time for things you enjoy – such as decorating your new home!

Have questions? Post your home loan queries online to have them answered by free. Don’t worry. Your personal information is safe with us; you won’t receive any unwanted calls or emails.